Contents

• Introduction
• Types of Work Arrangements
• Workforce Size and Selected Worker Characteristics
• Retirement Income Sources for Nontraditional Workers
• Employer-Sponsored Pension Plans
• IRA-Based Retirement Plans
• Private Savings
• IRAs
• State-Facilitated Retirement Savings Programs
• Social Security
• Estimates of Nontraditional Workers' Access to and Participation in Retirement Savings Plans
• BLS Contingent Workers and Workers in Alternative Work Arrangements Estimates
• Estimates from Non-BLS Sources
• Limitations of Survey Data
• Estimates of Nontraditional Workers' Retirement Savings
• Policy Challenges to Expanding Access to Employer-Sponsored Pension and Retirement Plans
• Employer Challenges
• Worker Challenges
• Lack of an Employment Relationship
• Eligibility Requirements
• Liquidity Constraints
• Earnings Volatility and Payment Methods
• Recent Congressional Efforts That Could Improve Retirement Security for Nontraditional Workers
• Discussion

Summary

Many factors influence workers' retirement preparedness, including their access to employer-sponsored pension plans. A key policy issue of interest to Congress is the extent to which access to such plans correlates with the type of work arrangement (e.g., traditional employment relationships versus contract-based and other nontraditional arrangements). Many workers in traditional employer-employee relationships are covered by employer-sponsored pension plans, such as defined benefit (DB) plans and defined contribution (DC) plans. Individuals who engage in nontraditional work, ranging from independent contracting work to gig economy work and temporary work, typically do not have traditional employer-employee relationships and thus are less likely than traditional workers to be covered by employer-sponsored pension and retirement plans. Some stakeholders have expressed concern that nontraditional workers might be unable to accumulate sufficient funds for retirement.

However, because nontraditional workers are a varied group of workers, they face a range of retirement outcomes. Some nontraditional workers, such as high-income independent contractors, have the knowledge and financial resources to save for retirement through a variety of retirement savings accounts and may be better prepared for retirement than many traditional workers. Nearly all workers—both traditional and nontraditional—are covered by Social Security, a federal program that provides monthly cash benefits to most retired or disabled workers and their family members. In addition, both traditional and nontraditional workers may save for retirement through various retirement savings vehicles outside of the traditional employer-employee relationship—for example, individual retirement accounts (IRAs)—but usage of these vehicles is limited.

In recent Congresses, the Setting Every Community up for Retirement Enhancement Act of 2019 ("SECURE Act," enacted as Division O of the Further Consolidated Appropriations Act of 2020 [P.L. 116-94; December 20, 2019]) and the SECURE 2.0 Act of 2022 ("SECURE 2.0," enacted as Division T of the Consolidated Appropriations Act, 2023 [P.L. 117-328; December 29, 2022]) included provisions intended to expand retirement coverage and savings among workers. Some of these efforts could directly benefit nontraditional workers who are considered employees of plan-sponsoring employers and meet eligibility requirements to participate in plans or those who combine traditional and nontraditional work. These efforts could also indirectly benefit nontraditional workers who have spouses who are traditional workers. However, a number of nontraditional workers, including those who are not considered employees of employers that sponsor plans, are likely unaffected by efforts to increase plan sponsorship but could be affected by provisions that, for example, incentivize greater savings in IRAs.

As provisions from these bills are implemented and Congress continues to study ways to improve retirement security, this report seeks to inform these legislative discussions by identifying and explaining challenges faced by nontraditional workers. To do so, this report provides an overview of retirement savings options and the different types of workers in the United States and their access to retirement savings plans and discusses policy challenges specifically relating to increasing coverage among nontraditional workers.

Introduction

Many factors influence workers' retirement preparedness, including their access to employer-sponsored pension plans. A key policy issue of interest to Congress is the extent to which access to such plans correlates with the type of work arrangement (e.g., traditional, employment relationships vs. contract-based and other nontraditional arrangements). Many workers in traditional employer-employee relationships are covered by employer-sponsored pension plans, such as defined benefit (DB) plans and defined contribution (DC) plans. Individuals who engage in nontraditional work—such as self-employment, gig economy work, or temporary jobs—are either not in employer-employee relationships or are in one on only a short-term basis and thus are less likely than traditional workers to be covered by employer-sponsored pensions. Some stakeholders have therefore expressed concern that workers in nontraditional work arrangements might be unable to accumulate sufficient funds for retirement.

However, nontraditional workers are a varied group of workers, and they face a range of retirement outcomes. Some nontraditional workers, such as high-income independent contractors, have the resources to save for retirement through a variety of retirement savings accounts and may be better prepared for retirement than many traditional workers. Nearly all workers—both traditional and nontraditional—are covered by Social Security, a federal social insurance program that provides monthly cash benefits to most retired or disabled workers and to the family members of deceased workers.¹ In addition, both traditional and nontraditional workers may save for retirement outside of the workplace through savings accounts such as individual retirement accounts (IRAs), but usage of these vehicles is limited.

Congress has recently passed legislation—such as the Setting Every Community up for Retirement Enhancement Act of 2019 ("SECURE Act," enacted as Division O of the Further Consolidated Appropriations Act of 2020 [P.L. 116-94, December 20, 2019]) and the SECURE 2.0 Act of 2022 ("SECURE 2.0," enacted as Division T of the Consolidated Appropriations Act, 2023 [P.L. 117-328, December 29, 2022])—that aims to expand retirement coverage and savings among broad groups of workers.

This report seeks to inform legislative discussions by identifying and examining challenges faced by nontraditional workers, who are less likely to have access to employer-sponsored plans and may face certain barriers to saving as compared to workers in traditional arrangements. The report opens with a discussion of the different types of work arrangements in the United States and a brief overview of the main sources of nontraditional workers' retirement income, followed by estimates of nontraditional workers' access to and participation in retirement plans. The report closes with a discussion of recent legislative efforts that could improve retirement security for nontraditional workers.

Types of Work Arrangements

Most workers in the United States are in traditional employee-employer relationships, meaning a worker is in an employment relationship (i.e., employed by an employer) with clear terms of employment that is expected to continue as long as the arrangement is mutually beneficial. Some workers, however, are in nontraditional work arrangements (Table 1), such as contingent work, which generally refers to jobs expected to have a limited duration, or a variety of alternative work arrangements—such as those that lack an employment relationship (e.g., independent contractors and self-employed workers), those that have work hours that are scheduled but not guaranteed (e.g., on-call workers), or those in which workers are placed in jobs by temporary help agencies or contract firms (e.g., information technology [IT] workers providing in-house services to client organizations).² Gig workers—whose work is mediated through online or mobile-app-based platforms—are a prominent group of nontraditional workers.³ Some workers combine traditional and nontraditional forms of work.

Current research on workers in nontraditional work arrangements suggests that a number of groups have less access to employer-sponsored pension and retirement plans than traditional workers do and, as a result, may be less prepared for retirement.

Workforce Size and Selected Worker Characteristics

The Bureau of Labor Statistics (BLS) measures employment on a monthly basis.⁴ These monthly estimates identity part-time and full-time workers separately and allow self-employment to be distinguished from other types of work, but they do not reveal whether workers are engaged in contingent work or other terms of work arrangement.⁵ BLS estimated that in October 2024 there were 151.7 million employed wage and salary workers and 9.7 million self-employed workers. Of these workers, 26.9 million worked part-time hours (i.e., fewer than 35 hours per week) in that month. Part-time workers may work in contingent, noncontingent, traditional, or alternative work arrangements.

On a less regular basis, BLS has measured the number of contingent workers and workers in alternative employment arrangements.⁶ The most recent set of such estimates is based on data collected in July 2023. BLS estimates that out of 161.9 million workers employed at that time, 6.9 million workers (4.3%) were in contingent work in their sole or main job, and about 16.3 million workers (10.1%) had an alternative work arrangement as their main job (i.e., they were independent contractors, on-call workers, temporary help agency workers, or workers provided by contract firms).⁷ Contingent work and alternative work arrangements, as defined by BLS, are not mutually exclusive categories.⁸

In terms of worker characteristics, BLS estimated that among the 6.9 million workers in contingent employment in July 2023:

• 40% were ages 16-24 years, compared to 12% of noncontingent workers;
• 14% were age 55 and above, compared to 24% of noncontingent workers;
• of those ages 25-64 years, 46% had at least a bachelor's degree (the same percentage of noncontingent workers had at least a bachelor's degree); and
• 40% were part-time workers, compared to 16% of noncontingent workers.⁹

BLS estimated that among the 16.3 million workers in alternative arrangements in July 2023:

• 33% were age 55 and above, compared to 22% of workers with traditional arrangements;
• 62% were men, compared to 52% of workers with traditional arrangements;
• of those ages 25 years and over, 42% had at least a bachelor's degree, compared to 46% of workers with traditional arrangements; and
• 31% worked part-time hours on their sole or main job, compared to 16% of workers in traditional arrangements.¹⁰

BLS also attempted to estimate the number of gig workers in May 2017 (i.e., those who match with customers using app-based platforms), and found that the complex and varied nature of such work made measurement particularly challenging. After data revisions, BLS estimated that workers who performed gig work as a main or secondary job accounted for about 1.0% of total employment in May 2017 (approximately 1.6 million workers).¹¹ BLS collected similar data on gig workers in a July 2023 survey, but estimates have not yet been published.¹²

Retirement Income Sources for Nontraditional Workers

Nontraditional workers may have several income sources in retirement, such as employer-sponsored pension plans, private savings, and Social Security (see Figure 1).¹³ Some participate in employer-sponsored DC or DB plans. Others might receive income from private savings, which includes savings in traditional or Roth IRAs, state-facilitated retirement savings programs, and other non-IRA savings, such as annuities.¹⁴

Figure 1. U.S. Retirement Income Sources

Source: Congressional Research Service.

Employer-Sponsored Pension Plans

A pension is a benefit that employers can offer to assist employees in providing for their financial security in retirement. Pension plans can be classified along several dimensions, such as whether employees receive monthly payments in retirement (DB plans) or accrue funds in individual accounts (DC plans). In DB plans (sometimes referred to as traditional pension plans), participants typically receive monthly payments in retirement based on a formula that uses either (1) a combination of length of service, accrual rate, and average of final years' salary; or (2) a flat dollar amount times the number of months or years in the plan.¹⁵ Some plans offer participants the option to receive their benefits as a lump-sum amount.

In DC plans, workers are provided individual accounts funded by their own contributions, contributions from their employers, or both. The funds in the account may accrue investment earnings, which can then be used as a source of income in retirement. The most common type of DC plan is the 401(k) plan, which may be sponsored by private sector employers.¹⁶

The Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406) was enacted to protect the interests of private sector pension plan participants and beneficiaries.¹⁷ ERISA sets standards that private sector pension plans must follow with regard to plan participation (e.g., who must be covered) and minimum vesting requirements (i.e., how long an employee must work to be covered), among other requirements.¹⁸ ERISA's requirements apply only to employees¹⁹ of an employer (and do not apply to nonemployees, such as independent contractors, or temp agency workers and contract workers whose principal employer is another entity, though such workers may be covered by pension plans sponsored by their employing agencies or contracting firms).²⁰ So long as pension plans meet the minimum standards in ERISA with regard to participant eligibility and vesting standards, plan rules can vary (and may be more generous than ERISA's standards). This means that pension plans could extend eligibility to additional employees—such as short-term or part-time employees—but that they generally may not extend eligibility to nonemployees, such as contractors.

IRA-Based Retirement Plans

Employers may also sponsor IRA-based retirement plans. IRAs are retirement savings accounts to which workers may contribute directly or use to hold rollovers of savings from other employer-sponsored plans (discussed in more detail in the next section of this report). IRA-based retirement plans include payroll deduction IRAs,²¹ Simplified Employee Pensions (SEPs),²² Savings Incentive Match Plan for Employees (SIMPLE) IRAs,²³ and Salary Reduction Simplified Employee Pension Plans (SARSEPs).²⁴ Among other factors, these plans vary in the degree of employer involvement.²⁵ Some of ERISA's requirements apply to IRA-based retirement plans.²⁶

IRA-based plans are geared toward smaller employers and have simpler rules compared to qualified plans, such as 401(k) plans. Some—like SIMPLE and SEP-IRAs—permit individuals to contribute more than they otherwise would be able to in a traditional or Roth IRA unconnected to employment.

Private Savings

Another source of income in retirement comes from private savings, which typically occurs outside of an employment relationship. In general, individuals are responsible for saving for retirement through private savings (though some workers in states with automatic IRA programs are automatically enrolled).

IRAs

IRAs are savings accounts typically established by individuals to save for retirement outside of the workplace. Congress has authorized two types of IRAs: traditional and Roth, which differ in tax treatment, eligibility, and some withdrawal rules.³³ Any worker with compensation is eligible to contribute to a traditional IRA.³⁴ Workers with compensation under specified thresholds may contribute to Roth IRAs.³⁵ Workers can set up and contribute to IRAs through many financial institutions. Individuals are permitted to contribute to IRAs even if they participate in employer-sponsored retirement plans (including SEP or SIMPLE IRA plans).

Contributions to traditional IRAs may be deductible from taxable income (depending on household adjusted gross income and workplace pension coverage), and withdrawals are included in taxable income. Contributions to Roth IRAs are not tax-deductible, but qualified distributions (those made after age 59½, death, or disability from an account that is at least five years old) are tax free. An individual can transfer traditional IRA savings to a Roth IRA in what is referred to as a conversion.³⁶

Because IRA contribution limits are lower than contribution limits for employer-sponsored plans and because IRAs do not include employer contributions, individuals who exclusively use IRAs to save for retirement may not be able to accumulate savings to the same extent as those who participate in employer-sponsored plans.³⁷

In some cases, private sector entities have experimented with ways to increase retirement savings among customers. For example, in December 2022, Robinhood, a brokerage platform, announced that it was launching a program that provided a 1% match (by Robinhood) on IRA contributions.³⁸ In 2023, SoFi, a personal finance company, announced that it would offer a 1% match on eligible IRA contributions.³⁹

State-Facilitated Retirement Savings Programs

While Congress addresses retirement security at the national level and establishes federal pension law and other savings incentives, several states have enacted or implemented state-administered retirement savings programs to increase retirement plan access and savings among private sector workers. States are taking a variety of approaches to these programs, including retirement marketplaces, in which employers and individuals can purchase savings plans through different state-approved providers; multiple-employer plans, in which unrelated businesses may jointly sponsor retirement plans; and payroll deduction IRAs, in which employers deduct portions of pay from employees' paychecks and deposit them into the employees' own Roth IRAs.⁴⁰

The most common state-facilitated retirement savings program is the automatic, or auto, payroll deduction IRA (referred to as a state auto IRA). Nearly all states with auto IRA programs require that employers that do not offer employer-sponsored retirement plans participate in the state-facilitated auto IRA program.⁴¹ Some nontraditional workers in states that facilitate auto IRA programs may be eligible to participate in these programs.⁴²

Social Security

Social Security is a work-based, federal insurance program that provides monthly cash benefits to workers and their eligible family members in the event of the workers' retirement, disability, or death. A worker's employment or self-employment is considered covered by Social Security if the services performed in that job result in earnings that are taxable and creditable for program purposes. In 2024, an estimated 182 million workers, or 94% of the overall workforce in paid employment or self-employment, were covered by Social Security.⁴³

Employment for Social Security purposes is defined under Section 210 of the Social Security Act.⁴⁴ Most jobs in the United States are covered by Social Security, whether the employment is in a traditional or nontraditional work arrangement, with some exceptions.⁴⁵ Additionally, for some types of work (such as farm work, self-employed workers, election officials and election workers, and household employees), earnings below a specific threshold are not subject to Social Security payroll taxes.⁴⁶ Therefore, earnings from traditional or nontraditional work arrangements that fit in the excepted categories may not be covered by Social Security.

Estimates of Nontraditional Workers' Access to and Participation in Retirement Savings Plans

Workers' access to and participation in retirement savings plans are influenced by multiple factors, such as the nature of the work arrangement, whether their employers sponsor pension or retirement plans, whether they meet eligibility requirements, and their states of residence.⁴⁷

The varied nature of nontraditional work means that there are a range of reasons why workers in such jobs might not have access to or participate in employer-sponsored pension or retirement plans. For example, although some contingent workers are considered employees of an employer that might sponsor a plan, their tenure with the employer may be too short to meet eligibility requirements for plan enrollment. Other workers in alternative work arrangements, such as contractors, are not considered employees and, thus, are not eligible to enroll in their employers' plans.⁴⁸

Regardless of whether a nontraditional worker has access to an employer-sponsored pension or retirement plan, any worker with taxable (and certain nontaxable) compensation is able to set up and contribute to an IRA. However, many workers do not save through IRAs for various reasons, such as low income or unfamiliarity with the accounts. In 2022, thirty-one percent of U.S. households had savings in IRAs.⁴⁹ While workers can contribute directly to IRAs, much of the assets in IRAs is from rollovers of savings in employer-sponsored plans.

In addition, nearly all nontraditional workers who are self-employed workers are permitted to set up their own retirement plans as well as their own IRAs. Some examples of plans available to self-employed workers include solo 401(k) plans, SIMPLE IRAs, SEP-IRAs, and one-participant DB plans.⁵⁰ In these cases, the self-employed worker acts in both an employer and employee capacity and may make contributions accordingly. In practice, however, many self-employed workers do not set up their own plans, perhaps due to lack of awareness or financial capability.

This section presents estimates of employer-sponsored pension and retirement plan access and participation from several sources.

BLS Contingent Workers and Workers in Alternative Work Arrangements Estimates

As noted earlier, BLS has collected information on contingent workers and workers in alternative work arrangements through the Contingent Worker Supplement (CWS) to the Current Population Survey (CPS), a large-scale household-based survey.⁵³ The last released data describe such work arrangements in July 2023, but do not include estimates on pension or retirement plan eligibility. The most current estimates for such benefits are from May 2017.⁵⁴ Contingent work and alternative work arrangements, as defined by BLS, are not mutually exclusive categories.

Estimates from the CWS indicate that in May 2017, contingent workers—which represented 1%-4% of all workers—were less likely to be eligible for or participate in employer-provided pension or retirement plans compared to noncontingent workers (see Figure 2).⁵⁵ Among contingent workers, 23.4% were eligible for and 18.4% participated in such plans, whereas 47.6% of noncontingent workers were eligible for such plans and 43.4% participated.

Figure 2. Contingent and Noncontingent Worker Eligibility for Employer-Provided Pension or Retirement Plans May 2017

Source: CRS presentation of Bureau of Labor Statistics data from BLS, "Contingent and Alternative Employment Arrangements News Release," Table 9, June 7, 2018, https://www.bls.gov/news.release/archives/conemp_06072018.htm. Notes: Number of workers is rounded to the nearest thousand.

Similarly, workers with alternative arrangements—specifically, on-call workers, temporary help agency workers, and workers provided by contract firms—were less likely to be eligible for and participate in employer-provided plans than were workers in traditional work arrangements (see Figure 3). Among workers with traditional arrangements in May 2017, about half were eligible for employer-sponsored pension or retirement plans. Among workers with alternative arrangements in May 2017, eligibility for workplace plans ranged from 13% (for temporary help agency workers) to 48% (for workers provided by contract firms). Data for independent contractors were not available.

Many of the 1.6 million gig workers identified by BLS are included in the BLS contingent worker and alternative work arrangement estimates, but BLS did not separately publish information on gig workers' access to and participation in retirement plans.⁵⁶

Figure 3. Eligibility for Employer-Provided Pension or Retirement Plans For Workers in Alternative and Traditional Arrangements May 2017

Source: CRS presentation of data in BLS, "Contingent and Alternative Employment Arrangements News Release," Table 9, June 7, 2018, https://www.bls.gov/news.release/archives/conemp_06072018.htm. Notes: Number of workers is rounded to the nearest thousand. Data exclude the self-employed (incorporated and unincorporated) and independent contractors.

While the data above focus on eligibility for and participation in employer-provided plans, BLS also collected data on IRA or Keogh plan usage among nontraditional workers in May 2017.⁵⁷ The Employee Benefit Research Institute analyzed these data and found that 33.8% of independent contractors reported owning IRAs or Keogh plans, compared to 24.6% of all nontraditional workers, and 23.9% of workers using gig economy platforms.⁵⁸

Estimates from Non-BLS Sources⁵⁹

BLS surveys of worker eligibility for employer-provided pension and retirement plans estimated eligibility for those who worked primarily in contingent and alternative work arrangements.⁶⁰ However, some workers in nontraditional jobs have multiple jobs that might combine traditional and nontraditional work. In July 2023, BLS found that 7.8% of contingent workers (on their sole or main job) held multiple jobs.⁶¹ Among workers with alternative arrangements as their sole or main job, 5.8% to 7.8% held multiple jobs.⁶²

The results of a 2020 Pew Charitable Trusts survey indicated that 40% of nontraditional workers had a mix of traditional and nontraditional jobs.⁶³ Pew found that employment in a traditional job was correlated with a worker's access to an employer-sponsored DC plan. Pew reported that 46.3% of nontraditional workers in its survey had jobs or employers during the previous year that offered DBs, DCs, or other types of retirement plans, noting that nontraditional workers with at least one traditional job were more likely to be included in this category.

Because retirement savings decisions frequently take place at the household level, rather than the individual level, Pew also examined nontraditional workers' access to retirement plans through spouses or partners. After accounting for a spouse or partner's workplace plan, overall access to a retirement plan in the previous year increased from 46.3% to 58.1% for nontraditional workers in the survey.⁶⁴

Even if an employer offers a retirement plan, workers might not meet the eligibility requirements to participate in the plan. Overall, Pew reported that nearly 22% of nontraditional workers participated in workplace DC plans during the year leading up to the survey, meaning that they (1) worked for employers that offered plans, (2) were eligible to participate in them, and (3) enrolled in the plans.⁶⁵

Pew's results indicate that relatively low DC plan participation among nontraditional workers is driven primarily by lack of access to such plans, not lack of interest in such plans. About 66% of nontraditional workers reported that they wanted work-related retirement benefits, and most workers (77.5%) with access to plans who met eligibility conditions participated in them.⁶⁶

Limitations of Survey Data

Many of these surveys consider the availability and uptake of retirement savings options to workers at a given point in time. For example, a survey might ask workers whether their employer offers pension plans and if so, if the workers are currently participating in the plans. The estimates produced by such studies are influenced by the methodology used to produce them. For example, the size and composition of a study's sample will influence the precision of estimates and the ability of researchers to consider certain worker groups separately (e.g., to compare workers in traditional and non-traditional work arrangements). How questions are phrased and whether the respondent is the worker or an employer are likely to affect the interpretation of survey responses.

Estimates of Nontraditional Workers' Retirement Savings

While some surveys ask nontraditional workers if they have access to or participate in retirement plans, others focus on workers' accumulated savings. Because saving for retirement is an activity that takes place over an individual's working lifetime, it is difficult to assess workers' preparedness based on their employment status at one point in time. A number of workers alternate between traditional employment (with or without access to employer-sponsored plans) and nontraditional employment throughout their careers. Others might stay in nontraditional work for the majority or all of their work careers. Some have partners or spouses with whom they are making retirement saving decisions.

Data on nontraditional workers' accumulated retirement savings appear to be limited. Differing definitions of who is considered a nontraditional worker (or who has worked in nontraditional arrangements during their work histories), along with differing methodologies in asking about work and work history, makes it difficult to identify this population in survey or administrative data.

Despite these challenges, some groups have attempted to measure nontraditional workers' retirement savings. Pew found that 59% of workers in its 2020 survey reported having savings in DC plans through current or former employers and that 22% reported having IRA savings.⁶⁷ As a comparison, in 2022, nearly 40% of U.S. households reported having savings in DC plans, and 31% reported having IRA savings.⁶⁸

A survey by the Transamerica Center for Retirement Studies found that 68% of self-employed workers (a subset of nontraditional workers) were currently saving for retirement in 2021.⁶⁹ Among those who were currently saving, 71% were saving through tax-advantaged retirement accounts, including IRAs (44%), 401(k) plans (34%), solo 401(k) plans (21%), SIMPLE IRAs (10%), SEP-IRAs (8%) or SARSEPs (4%).⁷⁰

Policy Challenges to Expanding Access to Employer-Sponsored Pension and Retirement Plans

Policy challenges to expanding access to employer-sponsored pension and retirement plans for workers in nontraditional work arrangements vary at the employer level and at the worker level. Several of these challenges are described below.

Employer Challenges

As previously discussed, private sector employers that sponsor pension plans are subject to ERISA's requirements. Plans may be more generous than ERISA's requirements (e.g., plan sponsors could extend eligibility to part-time workers and contingent workers, such as seasonal and temporary employees). However, employers may generally not extend eligibility to nonemployees.⁷¹ This is one of the principal impediments to increasing employer-sponsored pension and retirement access among nontraditional workers.

Though employers may extend plan eligibility to certain additional employees, they may choose not to for various reasons. First, employer-sponsored retirement plans are typically used to recruit and retain employees. Employers may not have a need to retain short-term employees, such as seasonal employees. Second, retirement plans represent administrative and monetary costs for employers. Additional participants in a retirement plan increase plan costs (e.g., such as through employer contributions made to an individual's account or administrative services to maintain each account).

Employers and participants receive favorable tax treatment to encourage establishing and contributing to retirement plans. One of the conditions for receiving these tax preferences is that plans benefit rank-and-file employees as well as highly paid employees and owners. Each year, plans must satisfy certain requirements to show that benefits are not excessively distributed to highly paid employees and that plan assets do not accumulate among a select few employees (generally referred to as nondiscrimination tests).⁷² These tests aim to ensure that, among other things, the contributions made by and for rank-and-file employees (non-highly compensated employees, or NHCEs) are proportional to contributions made for owners and managers (highly compensated employees, or HCEs). If a plan fails these tests, it must make additional contributions to NHCEs or reduce contributions by HCEs. Otherwise, the plan might lose its tax-qualified status.

The effect of including additional NHCEs, such as temporary or part-time workers, on a plan's ability to meet these requirements is unclear.⁷³ For example, additional NHCEs could improve a plan's ability to meet the top-heavy test, in which plans must document that no more than 60% of plan assets are held by key employees.⁷⁴ On the other hand, if additional NHCEs participate in the plan but bring down the average contribution rate of all NHCEs, then a plan might be more likely to fail one of the nondiscrimination tests called the average deferral percentage (ADP) test. If employers believe that the latter scenario could occur, they might be less willing to extend eligibility to nontraditional workers.

Congress has enacted provisions that alleviate this issue. Under current law, plans that cover excludable employees (i.e., those not required to be eligible to participate, such as employees with less than a year of service or who are under age 21, or certain part-time workers) must include these employees in nondiscrimination tests for the year but can conduct separate tests for (1) these excludable employees and (2) the rest of the employees (without the excludable employees). More recently, a provision in SECURE 2.0 modified rules for top-heavy tests so that plans could exclude from the test employees who are covered by the plans but do not meet the minimum age or service requirements.

Finally, because employer-sponsored plans are voluntary, additional requirements or administrative burdens might cause some employers to terminate their plans or decide not to adopt new plans.

Worker Challenges

Nontraditional workers are a diverse group, and face a range of potential obstacles to workplace-based or employer-sponsored pension and retirement plans. For example, independent contractors—a group that includes many gig economy workers—can range from financially successful business owners to workers with multiple jobs in the bottom of the household income distribution. Broadly, factors that may influence access and take up of retirement benefits for some nontraditional workers include lack of an employment relationship, eligibility requirements, liquidity constraints, and earnings volatility and payment methods. These factors are discussed below.

Lack of an Employment Relationship

Lack of an employment relationship is one of the main reasons why nontraditional workers do not have access to workplace plans. As noted, employers may generally not extend eligibility to nonemployees, which effectively bars access to employer-sponsored plans for many nontraditional workers.

Some nontraditional workers, such as independent contractors, are their own employers (i.e., self-employed) and may set up their own plans if they so choose. In contrast, on-call workers, as measured by the BLS, are employees, but their employment is concentrated in industries with relatively low retirement plan offer rates, and they may face other barriers.⁷⁵

While the absence of a traditional employment relationship does not preclude plan participation or the ability to save on one's own—such as through a solo 401(k) plan or an IRA—employer-sponsored pension plans often have higher take-up rates due to features such as automatic enrollment (in which employees are, by default, enrolled into the plan upon becoming eligible),⁷⁶ payroll deductions (in which retirement plans contributions are automatically deducted from a worker's paycheck), and employer contributions (contributions made by an employer on behalf of an employee). In addition, workers might not be aware of the savings options outside of the workplace that are available to them.

Eligibility Requirements

ERISA sets a minimum standard for hours-of-service and age requirements that workers must meet to participate in plans. Such requirements may discourage contingent workers—who do not expect their employment to last—from participating. Part-time workers are less likely to meet hours-of-service requirements compared to full-time workers, though recent legislation (discussed later) modified eligibility rules so that more part-time workers are eligible to participate in plans.

Liquidity Constraints

Some nontraditional workers may not be able to afford pension or retirement plan contributions (or fully finance such plans, in the case of independent contractors). Nontraditional workers with low weekly earnings—due to lower wages, lower hours, or both—may face difficulties in meeting current financial obligations and therefore be less inclined to allocate parts of their paychecks to retirement plans, where funds are set aside for the future and generally inaccessible in the near term.⁷⁷

One of Pew's surveys asked nontraditional workers without IRAs or workplace plans, or who were not eligible for such plans, whether they would be interested in a hypothetical retirement savings plan.⁷⁸ Among the workers who responded that they were probably or definitely not interested in the hypothetical plan, 58.3% cited lack of income as a barrier. Other barriers included, for example, not thinking about retirement savings at the time of the survey, not understanding how to save for retirement, not wanting to reduce take-home pay, and needing to save for a planned expense or an emergency.

In addition, nontraditional workers who are self-employed must pay 12.4% of net earnings up to the annual maximum in Social Security payroll taxes. Compared to employees in traditional employee-employer relationships—who split the cost with their employers (each paying 6.2%)—self-employed nontraditional workers might have less after-tax income, holding all else constant, which might influence retirement savings behavior.

Earnings Volatility and Payment Methods

Some nontraditional workers, such as independent contractors and on-call workers, may have considerable earnings volatility,⁷⁹ making it harder for them to make regular retirement contributions.⁸⁰ In addition, nontraditional workers have more variety in payment methods and frequency compared to traditional workers. While many traditional workers are paid on regular schedules and through direct deposit, nontraditional workers may be more likely to be paid in cash, by check, or via electronic cash transfer applications. Features that are common in employer-sponsored plans, such as automatic enrollment features, might be difficult for workers without regular payment intervals or amounts.

Recent Congressional Efforts That Could Improve Retirement Security for Nontraditional Workers

Legislation enacted in recent Congresses has focused on increasing access to, and participation in, employer-sponsored pension and retirement plans and increasing retirement savings more generally. Most provisions in these bills primarily affect workers in traditional employee-employer relationships (e.g., those who work for sponsoring employers or those who already participate in workplace plans). However, these provisions could benefit nontraditional workers who (1) combine nontraditional and traditional work—either concurrently or over time—by increasing access to plans through their traditional jobs or (2) have spouses who are traditional workers—by increasing spousal access to and participation in employer-sponsored plans—as retirement savings decisions are frequently made at the household level. Other provisions, which aim to increase retirement savings generally (e.g., increasing IRA contribution limits for certain older taxpayers) could benefit all types of workers.

Some provisions have been more narrowly targeted toward increasing access and participation rates for specific types of nontraditional workers, such as sole proprietors. A selection of provisions in recent laws that could improve retirement security for nontraditional workers is discussed below⁸¹:

• Expanding pooled employer plans (PEPs). A plan sponsored by one employer is called a single-employer plan. A plan sponsored by more than one employer but not maintained as part of a collective bargaining agreement is called a multiple-employer plan (MEP).⁸² Prior to the SECURE Act, employers who wished to jointly offer a MEP had to demonstrate some sort of commonality, such as operating in the same industry. A provision in the SECURE Act removed the commonality requirement for 401(k) plans sponsored by multiple employers, creating what are referred to as pooled employer plans (PEPs). SECURE 2.0 included a provision that expanded the PEP concept to 403(b) plans.
• Proponents of PEPs note that small plans—and similarly, sole proprietors—might find them advantageous due to their reduced administrative burdens and costs as compared to establishing a single employer plan or solo 401(k) plan. In a 115^th Congress hearing (prior to the passage of the SECURE Act, which authorized PEPs), one witness noted that open MEPs could provide independent workers with ERISA protections and institutional pricing not typically available to workers setting up plans for themselves.⁸³ In addition, the outsourcing of administrative responsibilities could be attractive to self-employed workers who might not want to spend the time or energy on them.⁸⁴ Because PEPs are relatively new, their presence in the industry—including their applicability to nontraditional workers—is still subject to discussion.
• Facilitating plan establishment by sole proprietors. SECURE 2.0 permitted a sole proprietor who establishes a new 401(k) plan after the end of the taxable year but prior to the tax filing deadline to treat the plan as having been established on the last day of the taxable year. This flexibility could lead to more sole proprietors establishing retirement savings accounts.
• Creating a retirement savings lost and found database. In some cases, individuals have lost track of former pensions, such as through changing addresses or plan mergers. SECURE 2.0 directed the Department of Labor (DOL) to create an online database where individuals can search for the contact information of plan administrators for former plans in which they accumulated benefits. Because many nontraditional workers have held traditional jobs throughout their lives, it is possible that this database will assist them in locating retirement money that they are owed.
• Replacing the Saver's Credit with the Saver's Match. Under current law, eligible low-income taxpayers who contribute to employer-sponsored DC plans or IRAs may claim a nonrefundable tax credit (the Retirement Savings Contribution Credit, also known as the Saver's Credit), up to $1,000 per person ($2,000 for those married filing jointly). A provision in SECURE 2.0 replaced the Saver's Credit with a Saver's Match beginning in 2027.⁸⁵ Rather than receiving a tax credit, eligible individuals will receive a federal match into their retirement accounts based on their DC plan or IRA contributions. Another provision in SECURE 2.0 directs the Treasury to increase public awareness of the Saver's Match. These provisions could increase retirement savings for low-income nontraditional workers by encouraging contributions into workplace plans (for those with plan access) or into IRAs, with the federal match mimicking (or supplementing) an employer match that would occur in a workplace-sponsored plan.

Discussion

Nontraditional workers are a varied group of workers, ranging from independent contractors to gig economy workers and temporary workers. As a result, they face a range of retirement outcomes. Some nontraditional workers, such as high-income independent contractors, have the ability to save for retirement through existing types of accounts and may be better prepared for retirement than many traditional workers. Other nontraditional workers, such as temporary workers, may work multiple jobs with short durations and fail to meet workplace plan eligibility requirements. In addition, Social Security is an important source of income for nearly all retired workers. Its projected trust fund depletion in 2035 could lead to benefit changes that reduce retirement security for nontraditional workers without alternate sources of income.⁸⁶

Recent federal, state, and private sector efforts have attempted to increase retirement savings among this diverse group. At the federal level, legislation enacted in the 116^th and 117^th Congresses contained provisions to increase access to, and participation in, employer-sponsored pension and retirement plans and increase retirement savings generally. While the bills were geared toward workers with employer-sponsored plans, increased access to plans could benefit nontraditional workers who concurrently work traditional jobs, switch between nontraditional and traditional work, or have spouses in traditional jobs.

Policy developments at the state level and initiatives in the private sector could improve retirement security for nontraditional workers. At the state level, some have established state-administered retirement savings programs that enroll workers who are not covered by workplace-sponsored plans into IRAs.⁸⁷ In the private sector, some businesses have experimented with ways to promote retirement savings among workers or clients, such as by providing a match based on IRA contributions.

Despite these efforts, a number of nontraditional workers continue to face barriers to retirement savings, including liquidity constraints, earnings volatility, and unfamiliarity with available savings vehicles. A focus on these underlying issues could lead to policy options that improve retirement security for this population. In addition, a recognition that workers may alternate among different types of work during their careers, and that savings decisions are frequently made at the household level—rather than the individual level—could inform policy solutions that are based on a lifecycle view of nontraditional workers and the related issues that might arise during transitions between traditional and nontraditional work.

As the workplace continues to evolve, Congress continues to express interest in this subject. In June 2024, Senator Cassidy, then-ranking member⁸⁸ of the Senate Health, Education, Labor, and Pensions (HELP) Committee, requested information from stakeholders "on ways to modernize federal law to allow independent workers access to portable workplace benefits like retirement and health care."⁸⁹ In the 118^th Congress, H.R. 3482 and S. 1696 would have required DOL to award grants to states, local governments, or nonprofit organizations to evaluate or improve existing models or approaches for providing portable benefits or design, implement, and evaluate new models or approaches for doing so.

Footnotes